RBC Capital downgrades Burberry to 'underperform'

RBC Capital Markets downgraded Burberry to 'underperform' from 'sector perform' and cut the price target to 1,530p from 1,620p.

The Canadian bank said it expects full-year 2018 to be another year of pedestrian sales and earnings growth for Burberry, materially below sector average.

"Low single-digit retail like-for-like growth should not be enough to generate meaningful operating leverage and this should put a lid on margin performance. Potential corporate activity and GBP changes are key risks to our thesis," it said.

RBC downgraded its pre-tax profit forecasts by FY18 and FY19 by 3% and 6%, respectively, putting it 6% below consensus on its new FY19 numbers.

The bank said that while retail LFL momentum improved in the second half of 2017, Burberry is still underperforming luxury brands like Gucci, Hermes, Moncler and Dior and it sees no short-term catalysts for retail LFL growth to accelerate beyond single digit.

In addition, RBC Capital Markets said the management shakeup - Marco Gobetti takes over as CEO this summer - is positive but there is limited scope for further cost-savings.

"The bulls will continue to point to significant scope for new management to elevate sales densities versus best-in-class players but this is something that does not come easy and requires time."

At 1030 BST, Burberry shares were down 0.1% to 1,593.73p.